Last week’s blog focused on why keeping watch on your credit score is important. This week we want to share with you some more facts and data about credit scores and consumer debt.

Recently the credit reporting service Experian released its annual “State of Credit: 2017” report which was summarized by Bob Sullivan in his blog of January 11 (read the report here).

We were pleased that, in general, the report was consistent with data we have reported in our past blogs. As Sullivan says: “2017 was a year of contradictions for American consumers…” The economy is strengthening, unemployment is low, but debt is increasing and delinquencies are rising.

For the most part the consumer is pretty healthy. The average credit score hit 675, the highest since 2012.

Even better “For the first time, there are more Americans with very high scores (Super Prime) than very low scores (Deep Subprime). For example, in 2017, 22.3% of Americans had Vantage Scores between 781-850 – a 6% increase versus 2016, and an improvement compared to five years ago when only 19.8% were in that range. Last year, 21.2% were below 600 – versus 22.6% in 2016 and 26.9% in 2012.”

Not everyone is at either end. The report provides a “Credit Snapshot” of the average consumer in the U.S.:

Average VantageScore 675

Average Number of Credit Cards 1

Average Balance on Credit Cards $6,354

Average Number of Retail Cards 5

Average Balance on Retail Cards $1,841

Average Mortgage Debt $201,811

Average Non-Mortgage Debt $24,706

Sullivan does point out that trying to create an ‘average’ consumer can be misleading. He uses the example of mortgage debt where a debt of $201,811 in the Midwest may seem high, but on either coast may seem like a bargain.

Geographic location also plays a part in good or not so good credit scores. Remarkably, given our Midwest footprint, we are in a bit of a ‘sweet spot’ with most of the states we serve in the top ten of those having the highest VantageScores in the nation. Minnesota, for example, has the best credit score of any state in the country (709), with Minneapolis topping the list of the cities with the highest credit scores (709). Wisconsin is not far behind (696), and the cities of Wausau (706) and Green Bay (705) are right behind Minneapolis.

Does age play a part in a credit score? It seems it does, at least if scores are broken down by generational segments. Sullivan points out that younger generations have fewer credit accounts, and therefore less credit history. Yet, as he points out, “…there’s a dramatic difference between the youngest, Generation Z (born after 1996), and the oldest, the so-called Silent generation (born before 1946). Gen Z’s average score is 634, while “Silents” are almost 100 points higher, at 729.” If you are a “Boomer” or older you seem to be in pretty good standing as that is the point average credit scores exceed 700. Here is a comparison by generation segment*:

Silent GenerationBaby BoomersGen XGen YGen Z

Average VantageScore 729 703 658 638 634

Average Number of Credit Cards 3.0 3.5 3.2 2.5 1.4

Average Balance on Credit Cards $4,613 $7,550 $7,750 $4,315 $2,047

Average Number of Retail Cards 2.3 2.7 2.6 2.0 1.5

Average Balance on Retail Cards $1,354 $1,931 $2,122 $1,626 $770

Average Mortgage Debt $156,705 $188,828 $231,774 $198,302 $160,411

Average Non-Mortgage Debt $15,161 $27,513 $30,334 $22,784 $6,963

*Data provided by Experian “State of Credit: 2017”

So, is this all healthy? Experian points out warning signs. Debt is at record highs. Student loans, auto debt and other non-mortgage debt is up and in particular for young borrowers. As Sullivan points out this leaves little room for error as they begin their adult lives.

Are there things to do that can help improve scores for 2018? Sullivan suggests three things in particular:

Try to get your credit card utilization rate below 30%.

Use your tax cut to pay down your debt.

Be careful when taking out new credit or applying for new credit cards. More debt can impact a credit score negatively.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners. Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 12 years.

We have been tracking trends in consumer debt for our clients for some time now. As a licensed debt collection agency, we feel it important to pass along information regarding the state of consumer credit so our clients can remain vigilant and proactive in the timely pursuit of their debts.

You may recall that, based on last the last “Quarterly Report on Household Debt and Credit” from the Federal Reserve Bank of New York, aggregate household debt is at an all time high–nearly $13 trillion dollars! This was the 13th consecutive quarter that debt balances increased. There is little to indicate this trend is abating.

An economy which continues to expand, featuring steady job growth and low unemployment, and a potential positive impact on wages and hiring from tax cuts in 2018, supports the ability (and willingness) of the consumer to take on and pay for this debt.

So, did you spend a little more than usual this holiday season? Did your credit card balance jump as a result?

If so you are not alone.

Recently, the firm MagnifyMoney published their annual survey on consumer spending during the holidays (read the full article here). Their survey, reflecting spending in 2017, found that “Consumers who said they went into debt over the holiday season racked up an average of $1,054 of debt…That’s not only an increase of 5% over last year, but we [sic] also found more shoppers put that debt on high-interest plastic.”

That most holiday shopping was paid for by credit card is not surprising. What was surprising was the fact that “…the percentage of consumers who pulled out the plastic for holiday gifts and other seasonal spending was significantly higher in 2017. When asked where the holiday debt came from, 68% of shoppers said that credit cards were responsible, up 8 percentage points from 2016.” Retailers apparently had some success with low interest financing offers and 17% of shoppers reported using a “store” card. Somewhat amazing is that 9% reported they took out a personal loan to pay for their spending.

MagnifyMoney also points out that the amounts financed were not trivial:

44% incurred additional debt of more than $1,000

5% more than $5,000

Among those surveyed, half of them said it will take more than three months to pay off.

This trend may spell trouble for many consumers. The report goes on to say “For most shoppers, going into debt wasn’t the plan. According to the survey, 64% of those who have holiday-related debt didn’t plan to incur it.”

The word “Yikes” comes to mind at this point. Didn’t plan on it?

Not only did they not plan to incur that amount of debt, it appears they are in no rush to pay it off either. “Only half of those surveyed said that they expected to pay off their spending in three months or less. Of the remaining half, 29% said they’ll need five months or longer…”

Carrying this debt, of course, comes at a price: “An additional 10 percent of people who took on holiday debt said they would only make minimum payments. Assuming that shopper spent the average of $1,054, and paid a minimum payment of $25 each month, he or she would be paying down that balance until 2023. That is nearly as painful as the $500 in interest fees they would pay over that time, assuming an annual percentage rate (APR) of 15.9%.”

Yikes once again.

Why is this important to our clients?

As we reported in a previous blog, the New York Fed survey also found that aggregate rates of delinquency went up slightly in the third quarter of 2017 to 4.9%. Of the $630 billion that is delinquent, $408 billion is in a serious stage of delinquency (more than 90 days past due).

Given this trend we encourage our clients to review their delinquencies and let us get started on collection activity at the earliest possible moment. Consumers will no doubt be significantly encumbered by holiday debts. Speed in recovery now before holiday bills hit, especially with tax refund season fast approaching, can help us serve you even better.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners. Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 12 years